Last Friday’s massacre of oil stocks seemed to flow though to most other sectors of the Australian market with the noticeable exception of Iron Ore stocks, where some short covering is emerging.
The oil slide clearly caught a number of people off guard locally, with some of our large oil stocks falling a massive 6-13% with price action that felt like a crash.
When we consider what’s hit the ASX200 recently it’s not surprising that we are languishing 6.5% below 2014 highs while the Dow and German DAX are flirting with fresh all-time highs.
1 Iron Ore falling around 30% in 5 months.
2 Crude Oil falling over 35% in 6 months.
3 Gold recently hitting fresh 4 year lows.
4 Large downgrades hitting some of our stocks, including Woolworths.
Our market is being held together by the banks which are nervous with the Murray inquiry looming in coming weeks. However, remember 10-year bonds are yielding only 3.04% and inflation expectations are pointing to lower interest rates for much longer, which should be very bullish for both equities and property in years ahead.
I still feel the local banks can rally hard after the Murray findings are announced, “sell on rumour, buy on fact”.
My Forecasts for 2014 and 2015
Other major indices are following the map perfectly, BUT the ASX200 is unfortunately trickier at present.
1 I still anticipate a classic Christmas rally into a major top; I now doubt whether the ASX200 can break much over 5450-5500. For me to be comfortable with this scenario, I do not want to see the market below 5300 for very long next week. Interestingly, last December we rallied 355 points from the 12th, but we fell 305 points in the first two weeks.
2 I remain comfortable with my view of a 2000-2500 pullback in the DOW approximately 15%, creating another great buying opportunity. I am envisaging this pullback will take the ASX200 back towards the 5000 level. Ideally before this pullback occurs, the US Indices will rally another 3% and the German DAX about 5%.
I often say “The Australian market leads in big tops and bottoms” and the current price action locally adds to my comfort of the pending large correction for world equities.
US Indices should trade another 3-4% higher, European Indices are still bullish targeting fresh 2014 highs, the Chinese Index looks set for strong gains, the Gold Sector still looks bullish, BHP is positive short term, targeting over $34, Seek (SEK) remains bullish, targeting $19.
The ASX200 is not bullish on a short term basis until we see a false break below 5293.
The US Indices are heading for a 15% correction in coming months, I remain bearish Woolworths (WOW) long term, targeting under $25, I remain bearish BHP longer term, Macquarie Group (MQG) is targeting $55, New Zealand’s Index looks to have commenced a 10% correction.
Equities are in the process of making a significant top into Christmas, early 2015 and Gold should continue to rally.
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